** **

**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-Q**

** **

**(Mark one)**

 

**ý**** Quarterly report pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934**

 

**For the quarterly period ended March 31,2005**

 

**OR**

 

**o**** Transition report pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934**

 

**Commission File Number:  0-31151**

 

 

**RADVIEWSOFTWARE LTD.**

(Exact name of registrant as specified in itscharter)

 
| **Israel**                                                      | ** ** | **Not applicable**                    |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (I.R.S. Employer  Identification No.) |

 

**7 New England Executive Park**

**Burlington, MA 01803**

(Address of principal executive offices)

 

##### **Telephone Number (781) 238-1111**

(Registrant’s telephone number, includingarea code)

 

**None**

(Former name, former address and formerfiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports) Yes  ý   No  o, and (2) hasbeen subject to such filing requirements for the past 90 days:  Yes  ý    No  o.

 

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 126-2of the Exchange Act):  Yes  o    No.  ý.

 

As of April 30, 2005, there were 20,525,682 shares of theRegistrant’s Ordinary Shares outstanding, excluding 134,000 Ordinary Sharesheld by the registrant as treasury shares that are “dormant” shares forpurposes of Israeli law.

 

 

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**RADVIEW SOFTWARE LTD. AND SUBSIDIARIES**

** **

Form 10-Q INDEX

 
| **PART I. FINANCIAL INFORMATION** |                                                                                                     |
|----------------------------------------|----------------------------------------------------------------------------------------------------------|
|                                   |                                                                                                     |   |
| Item 1.                                | Condensed Consolidated Financial Statements:                                                             |   |
|                                   |                                                                                                     |   |
|                                   | Condensed Consolidated Balance Sheets as of  March 31, 2005 and December 31, 2004              |   |
|                                   |                                                                                                     |   |
|                                   | Condensed Consolidated Statements of  Operations for the three months ended March 31, 2005 and 2004 |   |
|                                   |                                                                                                     |   |
|                                   | Condensed Consolidated Statements of Cash  Flows for the three months ended March 31, 2005 and 2004 |   |
|                                   |                                                                                                     |   |
|                                   | Notes to Condensed Consolidated Financial  Statements                                                    |   |
|                                   |                                                                                                     |   |
| Item 2.                                | Management’s Discussion and Analysis of  Financial Condition and Results of Operations              |   |
|                                   |                                                                                                     |   |
| Item 3.                                | Qualitative and Quantitative Disclosures  About Market Risk                                              |   |
|                                   |                                                                                                     |   |
| Item 4.                                | Controls and Procedures                                                                                  |   |
|                                   |                                                                                                     |   |
|                                   | PART II. OTHER INFORMATION                                                                          |   |
|                                   |                                                                                                     |   |
| Item 6.                                | Exhibits                                                                                                 |   |
|                                   |                                                                                                     |   |
|                                   | Signatures                                                                                               |   |
|                                   |                                                                                                     |   |
|                                   | Certifications                                                                                           |   |

 

2

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**PART I - FINANCIALINFORMATION**

 

**RADVIEW SOFTWARE LTD.AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(In thousands, except share data)**

**(Unaudited)**

 
| ** **                                                                                                                                                                                                                                                     | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                                                                                                                     | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Current Assets:                                                                                                                                                                                                                                                |       |                     |       |                        |       |
| Cash and cash equivalents                                                                                                                                                                                                                                      |       | $                        | 1,111      |                        | $          | 2,163 |   |
| Accounts receivable, net of  reserves of $72 at March 31, 2005 and December 31, 2004                                                                                                                                                                 |       | 753                      |       | 605                         |       |
| Prepaid expenses and other  current assets                                                                                                                                                                                                                     |       | 317                      |       | 375                         |       |
| Total Current Assets                                                                                                                                                                                                                                           |       | 2,181                    |       | 3,143                       |       |
|                                                                                                                                                                                                                                                           |       |                     |       |                        |       |
| Property and Equipment, net                                                                                                                                                                                                                                    |       | 177                      |       | 164                         |       |
| Other Assets                                                                                                                                                                                                                                                   |       | 475                      |       | 607                         |       |
|                                                                                                                                                                                                                                                           |       |                     |       |                        |       |
| Total Assets                                                                                                                                                                                                                                                   |       | $                        | 2,833      |                        | $          | 3,914 |   |
|                                                                                                                                                                                                                                                           |       |                     |       |                        |       |
| **LIABILITIES  AND SHAREHOLDERS’ DEFICIT**                                                                                                                                                                                                                |       |                     |       |                        |       |
| Current Liabilities:                                                                                                                                                                                                                                           |       |                     |       |                        |       |
| Accounts payable                                                                                                                                                                                                                                               |       | $                        | 250        |                        | $          | 239 |   |
| Accrued expenses                                                                                                                                                                                                                                               |       | 1,219                    |       | 1,141                       |       |
| Deferred revenue                                                                                                                                                                                                                                               |       | 1,604                    |       | 1,905                       |       |
| Total Current Liabilities                                                                                                                                                                                                                                      |       | 3,073                    |       | 3,285                       |       |
|                                                                                                                                                                                                                                                           |       |                     |       |                        |       |
| Long-term Liabilities:                                                                                                                                                                                                                                         |       |                     |       |                        |       |
| Accrued severance                                                                                                                                                                                                                                              |       | 557                      |       | 713                         |       |
|                                                                                                                                                                                                                                                           |       |                     |       |                        |       |
| Total Liabilities                                                                                                                                                                                                                                              |       | 3,630                    |       | 3,998                       |       |
|                                                                                                                                                                                                                                                           |       |                     |       |                        |       |
| Shareholders’ Deficit:                                                                                                                                                                                                                                    |       |                     |       |                        |       |
| Ordinary shares, NIS 0.01 par  value –  Authorized – 40,000,000 shares;  Issued – 20,659,682 shares at March 31, 2005 and December 31, 2004;  Outstanding – 20,525,682 shares at March 31, 2005 and December 31,  2004 |       | 51                       |       | 51                          |       |
| Treasury shares, at cost –  134,000 shares                                                                                                                                                                                                                |       | (100                     | )          | (100                        | )          |
| Additional paid-in capital                                                                                                                                                                                                                                     |       | 56,843                   |       | 56,813                      |       |
| Accumulated deficit                                                                                                                                                                                                                                            |       | (57,591                  | )          | (56,848                     | )          |
| Total Shareholders’ Deficit                                                                                                                                                                                                                               |       | (797                     | )          | (84                         | )          |
|                                                                                                                                                                                                                                                           |       |                     |       |                        |       |
| Total Liabilities and  Shareholders’ Deficit                                                                                                                                                                                                              |       | $                        | 2,833      |                        | $          | 3,914 |   |

 

The accompanying notes are anintegral part of these condensed consolidated financial statements.

 

3

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**RADVIEW SOFTWARE LTD. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS**

**(In thousands, except per share data)**

**(Unaudited)**

 
| ** **                                                                                | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| Revenues:                                                                                 |       |                                   |       |   |   |
| Software licenses                                                                         |       | $                                      | 940        |   | $ | 447 |   |
| Services                                                                                  |       | 567                                    |       | 533 |   |
| Total Revenues                                                                            |       | 1,507                                  |       | 980 |   |
|                                                                                      |       |                                   |       |   |   |
| Cost of Revenues:                                                                         |       |                                   |       |   |   |
| Software licenses                                                                         |       | 36                                     |       | 31 |   |
| Services                                                                                  |       | 57                                     |       | 80 |   |
| Total Cost of Revenues                                                                    |       | 93                                     |       | 111 |   |
|                                                                                      |       |                                   |       |   |   |
| Gross Profit                                                                              |       | 1,414                                  |       | 869 |   |
|                                                                                      |       |                                   |       |   |   |
| Operating Expenses:                                                                       |       |                                   |       |   |   |
| Sales and marketing                                                                       |       | 961                                    |       | 849 |   |
| Research and development                                                                  |       | 710                                    |       | 669 |   |
| General and administrative                                                                |       | 476                                    |       | 505 |   |
| Total Operating Expenses                                                                  |       | 2,147                                  |       | 2,023 |   |
|                                                                                      |       |                                   |       |   |   |
| Operating loss                                                                            |       | (733                                   | )          | (1,154 | ) |
|                                                                                      |       |                                   |       |   |   |
| Interest income (expense), net                                                            |       | (2                                     | )          | 3 |   |
| Other expense, net                                                                        |       | (8                                     | )          | — |   |
|                                                                                      |       |                                   |       |   |   |
| Net loss                                                                                  |       | $                                      | (743       | ) | $ | (1,151 | ) |
|                                                                                      |       |                                   |       |   |   |
| Basic and diluted net loss per share                                                      |       | $                                      | (0.04      | ) | $ | (0.06 | ) |
|                                                                                      |       |                                   |       |   |   |
| Weighted average number of shares used in  computing basic and diluted net loss per share |       | 20,526                                 |       | 17,796 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

 

4

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**RADVIEW SOFTWARE LTD. ANDSUBSIDIARIES**

**CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(In thousands)**

**(Unaudited)**

 
| ** **                                                                        | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                        | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| Cash Flows from Operating  Activities:                                            |       |                                   |       |   |   |
| Net loss                                                                          |       | $                                      | (743       | ) | $ | (1,151 | ) |
| Adjustments to reconcile net  loss to net cash used in operating activities— |       |                                   |       |   |   |
| Depreciation                                                                      |       | 16                                     |       | 76 |   |
| Stock-based compensation                                                          |       | 30                                     |       | 84 |   |
| Accrued severance                                                                 |       | (156                                   | )          | 16 |   |
| Changes in operating assets and  liabilities—                                |       |                                   |       |   |   |
| Accounts receivable, net                                                          |       | (148                                   | )          | (48 | ) |
| Prepaid expenses and other  current assets                                        |       | 58                                     |       | 44 |   |
| Accounts payable                                                                  |       | 11                                     |       | (115 | ) |
| Accrued expenses                                                                  |       | 78                                     |       | (55 | ) |
| Deferred revenue                                                                  |       | (301                                   | )          | 295 |   |
| Net cash used in operating  activities                                            |       | (1,155                                 | )          | (854 | ) |
|                                                                              |       |                                   |       |   |   |
| Cash Flows from Investing  Activities:                                            |       |                                   |       |   |   |
| Purchases of property and  equipment                                              |       | (29                                    | )          | (18 | ) |
| Decrease (increase) in other  assets                                              |       | 132                                    |       | (12 | ) |
| Net cash provided by (used in)  investing activities                              |       | 103                                    |       | (30 | ) |
|                                                                              |       |                                   |       |   |   |
| Cash Flows from Financing  Activities:                                            |       |                                   |       |   |   |
| Proceeds from private placement  of ordinary shares, net                          |       | —                                 |       | 1,831 |   |
| Proceeds from exercise of stock  options                                          |       | —                                 |       | 3 |   |
| Net cash provided by financing  activities                                        |       | —                                 |       | 1,834 |   |
|                                                                              |       |                                   |       |   |   |
| Increase (decrease) in cash and  cash equivalents                                 |       | (1,052                                 | )          | 950 |   |
|                                                                              |       |                                   |       |   |   |
| Cash and cash equivalents,  beginning of period                                   |       | 2,163                                  |       | 3,075 |   |
| Cash and cash equivalents, end  of period                                         |       | $                                      | 1,111      |   | $ | 4,025 |   |
|                                                                              |       |                                   |       |   |   |
| Cash paid during period for  interest                                             |       | $                                      | 9          |   | $ | 2 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

 

5

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**RADVIEW SOFTWARE LTD. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

**(Unaudited)**

 

**1.****             ****Operations**

 

RadView Software Ltd.(the “Company”) is an Israeli corporation. The Company develops, markets and supports software that enablesorganizations to verify the scalability, efficiency and reliability of webapplications, and facilitates their rapid development.

 

The Company has a history of incurring net losses and had anaccumulated deficit of approximately $57.6 million at March 31, 2005.  The Company has funded these lossesprincipally from proceeds from equity financing, including the privateplacement of its ordinary shares completed in March 2004 (see Note 4).

 

On March 28, 2005,the Company received a commitment letter for a one-year revolving line ofcredit facility with a bank for borrowings of up to $2.0 million.  Advances under the facility will be limitedto the lesser of $2.0 million or the sum of 75% of eligible accountsreceivables plus $1.0 million.  Under theterms of the commitment letter, borrowings under the facility will bearinterest at the bank’s prime rate plus 1.25%. The Company would be required to maintain compliance with financialcovenants consisting of a minimum cash balance of $1.0 million and specifiednet income (loss) levels based on its operating budget.  Borrowings under the revolving line of creditfacility are subject to the negotiation and execution of definitive agreementsacceptable to the bank and the Company.

 

In connection with the facility, the commitment letter provides thatthe bank will receive warrants with an aggregate exercise price of $60,000 topurchase the Company’s ordinary shares at an exercise price equal to the marketprice on the date definitive agreements with respect to the facility areexecuted.  If the closing had occurred onMay 11, 2005, the Company would have been required to issue to the bankwarrants to purchase approximately 353,000 of the Company’s ordinary shares atan exercise price of $0.17 per share. The fair value of these warrants, estimated to be approximately $45,000,would be charged to interest expense over the one-year term of the facility.

 

 Management believes thatexisting cash and cash equivalents, along with borrowings that would beavailable under the revolving line of credit facility, will be adequate to fundoperations through March 31, 2006.

 

**2.****             ****SignificantAccounting Policies**

 

The Company’s condensed consolidated financialstatements are prepared in accordance with U.S. generally accepted accountingprinciples for interim financial information. The significant policies followed in the preparation of the condensedconsolidated financial statements, applied on a consistent basis, are asfollows.

 

**(a)**          Useof Estimates

** **

The preparation of thefinancial statements in conformity with U.S. generally accepted accountingprinciples requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities as of the date of the financial statements and thereported amounts of revenues and expenses during the reporting periods.  Actual results could differ from theseestimates.

 

**(b)****          FinancialStatements in U.S. Dollars**

 

The consolidated financial statements of theCompany have been prepared in U.S. dollars because the currency of the primaryeconomic environment in which the operations of the Company are conducted isthe U.S. dollar. Substantially all of the Company’s sales are in U.S. dollars.Most purchases of materials, components and most marketing and management costsare denominated in U.S. dollars. Therefore, the functional currency of theCompany is the U.S. dollar.

 

6

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Transactions and balances denominated in U.S.dollars are presented at their original amounts. Transactions and balances inother currencies are translated into U.S. dollars in accordance with theprinciples set forth in the Financial Accounting Standards Board of the UnitedStates (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 52,*Foreign Currency Translation*.Accordingly, items have been translated as follows:

 

•                  MonetaryItems — At the exchange rate in effect on the balance sheet date.

•                  NonmonetaryItems — At historical exchange rates.

•                  Revenueand Expense Items — At the exchange rates in effect as of the date ofrecognition of those items (excluding depreciation and other items derivingfrom nonmonetary items).

 

All exchange gains and losses from the above-mentioned translation(which were immaterial for all periods presented) are reflected in thestatements of operations.  Therepresentative rate of exchange was U.S. $1.00 to 4.361 New Israeli Shekel (“NIS”)at March 31, 2005, U.S. $1.00 to NIS 4.308 at December 31, 2004, andU.S. $1.00 to NIS 4.528 at March 31, 2004.

 

**(c)****          InterimFinancial Statements**

* *

The accompanying condensed consolidated balancesheet as of March 31, 2005, the condensed consolidated statements ofoperations for the three months ended March 31, 2005 and 2004, and thecondensed consolidated statements of cash flows for the three months ended March 31,2005 and 2004, are unaudited but, in the opinion of management, include alladjustments necessary for a fair presentation of results for these interimperiods.  Certain information andfootnote disclosures normally included in financial statements prepared inaccordance with U.S. generally accepted accounting principles have beenomitted, although the Company believes that the disclosures included areadequate to make the information presented not misleading. The results ofoperations for the three months ended March 31, 2005 are not necessarilyindicative of the results to be expected for the entire fiscal year.  These financial statements should be read inconjunction with the annual consolidated financial statements for 2004 andrelated notes included in the Company’s Annual Report on Form 10-K for theyear ended December 31, 2004.

 

**(d)**          Researchand Development Cost

** **

The Company has evaluated the establishment of technologicalfeasibility of its products in accordance with SFAS No. 86, *Accounting for the Costs of Computer Software to BeSold, Leased or Otherwise Marketed*. The Company sells products in a market that is subject to rapidtechnological change, new product development and changing customer needs.  Accordingly, the Company has concluded thattechnological feasibility is not established until the development stage of theproduct is nearly complete.  The Companydefines technological feasibility as the completion of a working model.  The time period during which costs could becapitalized from the point of reaching technological feasibility until the timeof general product release is very short. Consequently, the amounts that could be capitalized are not material tothe Company’s financial position or results of operations.  Therefore, the Company has charged all suchcosts to research and development expense in the period incurred.

 

***(e)*****         ****Revenue Recognition**

* *

The Company generates revenues mainly from licensing the rights to useits software products.  The Company alsogenerates revenues from support and maintenance services and, to a lesserextent, training and consulting services. The Company sells its products primarily through its direct sales forceand, to a lesser extent, through resellers and distributors considered asend-users.

 

The Company recognizes revenue in accordance with Statement of Position(“SOP”) 97-2, *Software Revenue Recognition,*and SOP 98-9, *Modification of SOP 97-2, Software Revenue Recognition, WithRespect to Certain Transactions*. ****Under SOP 97-2, r****evenuesfrom software product licenses are recognized upon delivery of the softwareprovided there is persuasive evidence of an agreement, the fee is fixed ordeterminable and collection of the related receivable is probable and nofurther obligations exist.  Revenuesunder multiple-element arrangements, which may include software licenses,support and maintenance, and training and consulting services, are allocated toeach element based on their respective fair values based on vendor-specificobjective evidence.  This objective

 

7

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evidence represents the priceof products and services when sold separately. ****W****henvendor-specific objective evidence of fair value exists for undeliveredelements but does not exist for delivered elements of a software arrangement,the Company uses the residual method for recognition of revenues, when allother revenue recognition criteria are met. Under the residual method, the Company defers revenues related to theundelivered elements based on their vendor specific objective evidence of fairvalue and recognizes the remaining arrangement fee for the deliveredelements.  When vendor-specific objectiveevidence of fair value for undelivered elements does not exist, revenues fromthe entire arrangement are recognized over the term of the agreement.

 

Revenues from support and maintenance agreements are recognized ratablyover the term of the maintenance period, which is typically one year. Revenuesfrom training arrangements are recognized as the services are performed.

 

Revenue is recognized for software licenses sold to resellers ordistributors at the time of shipment, provided that all revenue recognitioncriteria set forth in SOP 97-2 are fulfilled.

 

The Company generallydoes not grant a right of return to its customers.  When a right of return exists, revenue isdeferred until the right of return expires, at which time revenue is recognizedprovided that all other revenue recognition criteria are met.

 

Amounts collected or billed prior to satisfying the above revenuerecognition criteria are reflected as deferred revenue.  Deferred revenue represents deferredmaintenance revenue, and to a lesser extent, deferred software licenserevenues.

 

**(f)**            EmployeeStock Options

** **

In December 2004, the FASB issued SFAS No. 123R (Revised2004) (“SFAS 123(R)”), Share-Based Payment, which replaces SFAS No. 123,Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,Accounting for Stock Issued to Employees. SFAS 123(R), as amended, requires all share-based payments to employees,including grants of employee stock options, to be recognized in the financialstatements based on their fair values beginning with the first reporting periodbeginning after June 15, 2005.  In April 2005,the SEC extended the adoption date for Statement 123(R) to the first annualreporting period beginning after June 15, 2005, which, for the Company, isthe annual period that begins on January 1, 2006. Early adoption will be permittedin periods in which financial statements have not yet been issued.

 

SFAS 123(R) permits public companies to adopt its requirements usingone of two methods:

 

•                  A“modified prospective” method in which compensation cost is recognizedbeginning with the effective date (a) based on the requirements of SFAS123(R) for all share-based payments granted after the effective date and (b) basedon the requirements of SFAS 123 for all awards granted to employees prior tothe effective date of SFAS 123(R) that remain unvested on the effective date.

•                  A“modified retrospective” method which includes the requirements of the modifiedprospective method described above, but also permits entities to restate basedon the amounts previously recognized under SFAS 123 for purposes of pro formadisclosures either (a) all prior periods presented or (b) priorinterim periods of the year of adoption.

 

The Company has elected to adopt early the provisions of SFAS 123(R)effective January 1, 2005.  Aspermitted by SFAS 123(R), the Company has elected to follow the modifiedprospective method of adoption.

 

8

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The Company has determined the fair value of share based-paymentsissued after January 1, 2005 and unvested options granted in prior periodsusing the Black-Scholes option valuation model, using the followingweighted-average assumptions:

 
| ** **              | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------|------------|----------------------------------------|------------|
| ** **              | ** ** | **2005**                               | ** ** | **2004** | ** ** |
|                    |       |                                   |       |   |   |
| Expected life of option |       | 4 years                                |       | 4 years |   |
| Dividend yield          |       | —                                 |       | — |   |
| Expected volatility     |       | 110                                    | %          | 110 | % |
| Risk-free interest rate |       | 3.4                                    | %          | 3.4 | % |

 

For all periods presented before January 1, 2005, the Companyelected to follow Accounting Principles Board (“APB”) Opinion No. 25, *Accounting for Stock Options Issued to Employees,*and FASB Interpretation (“FIN”) No. 44, *Accountingfor Certain Transactions Involving Stock Compensation,* in accountingfor its employee stock option plans. Under APB No. 25, when the exercise price of an employee stockoption is equivalent to or above the market price of the underlying stock onthe date of grant, no compensation expense is recognized.  The Company adopted the disclosure provisionsof SFAS No. 148, *Accounting forStock-Based Compensation - Transition and Disclosure*, which amendedcertain provisions of SFAS No. 123, *Accountingfor Stock-Based Compensation*, to provide alternative methods oftransition for an entity that voluntarily changes to the fair value basedmethod of accounting for stock-based employee compensation, effective as of thebeginning of the fiscal year.

 

Pro forma information regarding the Company’s net lossand net loss per share prior to the adoption of SFAS No. 123(R) has beendetermined as if the Company had accounted for its employee stock options underthe fair value method prescribed by SFAS No. 123.

 

 The followingtable illustrates the effect on net loss and net loss per share if the Companyhad applied the fair value recognition provisions of SFAS No. 123 tostock-based employee compensation prior to January 1, 2005.

 
| ** **                                                                     | ** ** | **Three Months  Ended  March 31, 2004** | ** ** |
|--------------------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                     | ** ** | **(In thousands)**                           | ** ** |
|                                                                           |       |                                         |       |
| Net loss, as reported                                                          |       | $                                            | (1,151     | ) |
| Add: Stock-based compensation included in  reported net loss                   |       | 84                                           |       |
| Deduct: Total stock-based compensation  expense under fair value based methods |       | (142                                         | )          |
| Pro forma net loss                                                             |       | $                                            | (1,209     | ) |
|                                                                           |       |                                         |       |
| Net loss per share:                                                            |       |                                         |       |
| As reported                                                                    |       | $                                            | (0.06      | ) |
| Pro forma                                                                      |       | $                                            | (0.07      | ) |

 

The Company applies SFAS No. 123 and Emerging Issues Task Force No. 96-18“Accounting for Equity Instruments That Are Issued to Other Than Employees forAcquiring, or in Conjunction with Selling, Goods or Services” (“EITF 96-18”),with respect to options and warrants issued to non-employees. SFAS No. 123and EITF 96-18 require the use of option valuation models to measure the fairvalue of the options and warrants at the measurement date.

 

9

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**(g)**         Reclassifications

** **

Certain amounts in the accompanying consolidated financial statementshave been reclassified to conform to the current period’s presentation.

 

**3.****             ****EarningsPer Share**

 

Basic and diluted net loss per share ispresented in conformity with SFAS No. 128, *Earnings Per Share*, for all periods presented.  Basic and diluted net loss per ordinary sharewas determined by dividing net loss attributable to ordinary shareholders bythe weighted average ordinary shares outstanding during the period.  Diluted net loss per ordinary share is thesame as basic net loss per ordinary share for all periods presented, as theeffects of the Company’s potential additional ordinary shares wereantidilutive.

 

The calculation of diluted net loss per shareexcludes outstanding stock options, warrants and additional investment rightsheld by certain investors because their inclusion would be antidilutive, as setforth in the following table.

 
| ** **                                                              | ** ** | **March 31,** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------|------------|
| ** **                                                              | ** ** | **2005**           | ** ** | **2004** | ** ** |
| ** **                                                              | ** ** | **(In thousands)** | ** ** |
|                                                                    |       |               |       |   |   |
| Stock options                                                           |       | 3,490              |       | 3,702 |   |
| Warrants (See Note 4(b))                                                |       | 2,334              |       | 3,000 |   |
| Additional investment rights held by  certain investors (See Note 4(b)) |       | 3,333              |       | 3,333 |   |

 

**4.****             ****Shareholders’Equity**

 

**(a)**          PrivatePlacement

** **

On March 17, 2004, the Company completed a private placement (the “PrivatePlacement”) of its ordinary shares, additional investment rights to purchaseordinary shares (“Additional Investment Rights”) and four series of warrants topurchase ordinary shares (“Warrants”) pursuant to a securities purchaseagreement (the “Purchase Agreement”) between the Company and certain purchasersnamed therein (the “Purchasers”), in reliance on an exemption under Section 4(2) ofthe Securities Act of 1933, as amended, and Regulation D promulgatedthereunder.

 

The Company issued 3,333,331 ordinary shares to the Purchasers for apurchase price per share of $0.60, or aggregate gross proceeds of $2.0million.  The Company also issued Additional Investment Rights andWarrants to the Purchasers.  The Companyreceived net proceeds of $1.8 million from the Private Placement.

 

In accordance with the Purchase Agreement, the Company was required toregister for resale on Form S-3 (the “Registration Statement”) the ordinaryshares issued in the Private Placement and the ordinary shares issuable uponexercise of the Additional Investment Rights and Warrants.  The Registration Statement was declaredeffective on June 17, 2004.   TheCompany must maintain the effectiveness of the Registration Statement for aperiod of up to two years from the effective date of the RegistrationStatement.

 

**(b)**          Warrantsand Additional Investment Rights

** **

In connection with the Private Placement, the Company issued to thePurchasers Additional Investment Rights to purchase 3,333,331 ordinary sharesat an exercise price of $0.810 per share, exercisable from March 11, 2004until June 17, 2005.

 

10

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The Company also issued to the Purchasers four series of Warrants asfollows:

 
| **Series**             | ** ** | **Term**               | ** ** | **Exercise  Price** | ** ** | **Number of  Shares** | ** ** |
|------------------------|------------|------------------------|------------|---------------------|------------|-----------------------|------------|
|                   |       |                   |       |                |       |                  |       |
| Series A warrants |       | Four and a  half years |       | $                   | 0.992      |                  | 1,000,000  |   |
| Series B warrants |       | Two years              |       | $                   | 0.873      |                  | 666,668    |   |
| Series C warrants |       | Four and a  half years |       | $                   | 0.992      |                  | 666,664    |   |
| Series D warrants |       | Two years              |       | $                   | 0.873      |                  | 666,664    |   |
|                   |       |                   |       |                |       | 2,999,996             |       |
|                        |            |                        |            |                     |            |                       |            |  |  |

 

The Warrants wereinitially exercisable for the number of shares indicated above, subject tocustomary anti-dilution adjustments and, with respect to the Series C andD warrants, subject to the conditions indicated below.  The Series A and Series B warrantsbecame exercisable beginning September 11, 2004 for a term as noted in thetable above.  One half of the Series Cand Series D warrants became exercisable on September 20, 2004, thedate the Company’s ordinary shares were delisted from the Nasdaq SmallCapMarket.   Because the AdditionalInvestment Rights were not exercised before the delisting event, the otherone-half of the Series C and D warrants will not become exercisable.

 

The Company may requirethe Purchasers to exercise their right to purchase ordinary shares pursuant tothe Additional Investment Rights or Warrants if the closing price of theordinary shares on an eligible market exceeds the respective exercise prices ofthe Additional Investment Rights or any series of the Warrants by at least 100%for twenty consecutive trading days on which the average daily trading volumeof the ordinary shares is at least 250,000 Ordinary Shares, excluding blocks of25,000 or more ordinary shares.

 

Pursuant to an evaluation of the terms of the Purchase Agreement underthe provisions of EITF 00-19, *Accounting forDerivative Financial Instruments Indexed to, and Potentially Settled in, aCompany’s Own Stock*, the Company has classified all the abovederivative financial instruments issued in connection with the privateplacement as equity.

 

**5.****             ****TechnologyLicense Transaction**

 

On July 7, 2004, theCompany received $1,000,000 in cash from a technology license transaction forits WebLOAD product with Ixia, an original equipment manufacturer, pursuant tothe exercise of an option by Ixia under the terms of a development, publishingand distribution agreement.  As a resultof the option exercise, the technology license provides Ixia with expandedlicense rights including the right to access and use source code for theWebLOAD product and the right to create derivative products.  Under the terms of the original agreement,Ixia was required to continue to pay to the Company royalties on its sale ofWebLOAD at a reduced rate through July 7, 2005.  Ixia was also granted a right to make asingle lump-sum payment of $250,000 to the Company in lieu of its reducedroyalty obligations.  In November 2004,Ixia exercised its right and made payment to the Company of $250,000.  Accordingly, Ixia has no further license feeor royalty payment obligations to the Company pursuant to this arrangement.

 

The Company is obligated to provide product updates and technical andengineering support to Ixia until July 2005.  The Company is recognizing the $1,000,000technology license fee as revenue over the 12-month period that commenced on July 7,2004, over the term of the Company obligated to provide support services toIxia.  The Company is also recognizing asrevenue the $250,000 payment in lieu of royalties over the same 12-monthperiod.

 

Revenue recognized under this technology license transaction was$362,000 for the three months ended March 31, 2005, which has beenclassified as software licenses revenues in the consolidated statements ofoperations.  There were no technologylicense revenues for the three months ended March 31, 2004.

 

Amounts collected but not recognized as revenues under this technologylicense transaction are included in deferred revenues and totaled $363,000 asof March 31, 2005.

 

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**6.****              DisclosuresAbout Segments of an Enterprise**

 

The Company has adopted SFAS No. 131, *DisclosuresAbout Segments of an Enterprise and Related Information*. The Companyoperates in one reportable segment (see Note 1 for a brief description of theCompany’s business). The total revenues are attributed to geographic areasbased on the location of the end-user customer as follows:

 
| ** **     | ** ** | **Three months ended  March 31,** | ** ** |
|----------------|------------|----------------------------------------|------------|
| ** **     | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| ** **     | ** ** | **(in thousands)**                     | ** ** |
|           |       |                                   |       |   |   |
| United States  |       | $                                      | 1,046      |   | $ | 661 |   |
| Europe         |       | 131                                    |       | 124 |   |
| Israel         |       | 257                                    |       | 118 |   |
| Other          |       | 73                                     |       | 77 |   |
| Total revenues |       | $                                      | 1,507      |   | $ | 980 |   |

 

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**MANAGEMENT****’S DISCUSSION AND ANALYSIS OF**

**FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

*Statements in this Quarterly Report on Form 10-Qconcerning RadView’s business outlook or future performance; anticipatedrevenues, expenses or other financial items; product introductions and plansand objectives related thereto; and statements concerning assumptions made orexpectations as to any future events, conditions, performance or other matters,are “forward-looking statements” as that term is defined under U. S. federalsecurities laws. Forward-looking statements are subject to various risks,uncertainties and other factors that could cause actual results to differmaterially from those stated in such statements. These risks, uncertainties andfactors include, but are not limited to: our history of losses; marketacceptance of our products; our ability to develop new products and enhanceexisting products; impact of significant competition; and other factorsdetailed in RadView’s filings with the Securities and Exchange Commission,including this Quarterly Report on Form 10-Q.*

 

# **Overview**

# ** **

We develop, market and support software that enables companies toassure the scalability, performance, efficiency and reliability of webapplications.  In May 2004, weintroduced the TestView suite of products, which provides a comprehensive testmanagement solution for test automation and reporting for webapplications.  The TestView suiteefficiently integrates test management and automation with the functionality ofour existing stand-alone products to include functional testing, load testing,and root-cause analysis.

 

We derive the majority of our software license revenues from perpetuallicenses of our load testing products and, to a lesser extent, our functionaltesting and root-cause analysis products. We derive the majority of our services revenues from support andmaintenance arrangements and, to a lesser extent, from training and consultingservices.  Substantially all of ourrevenues are denominated in U.S. dollars.

 

In the second half of2004 and in the first quarter of 2005, a portion of our license revenues wasderived from royalty fees and technology license fees from our OEM relationshipwith Ixia.  We are recognizing therevenue from the technology license as a subscription arrangement over a 12-monthperiod ending in June 2005.  In December 2004,we entered into an OEM distribution agreement with Allen Systems Group, or ASG,for the distribution of our TestView suite using ASG’s private label inexchange for royalty fees to be paid to us. ASG also has an option to purchase by June 2005 a technologylicense to use the source code of our TestView suite for a license fee of $2.5million payable in two annual installments. Part of our strategy is to increase our relationships with OEMdistribution partners.  If thesepartnerships are successful, we expect that software license fees will increaseas a percentage of our total revenues resulting from increased royalty andtechnology license fee revenues.  As of March 31,2005, we have deferred revenues relating to technology license arrangements inan aggregate amount of $363,000 that will be recognized in full during thesecond quarter of 2005.

 

Our cash balance was $1.1 million as of March 31, 2005.  In March 2005, we received a commitmentletter for a one-year revolving line of credit facility with a bank forborrowings of up to $2.0 million. Advances under the facility would be limited to the lesser of $2.0million or the sum of 75% of eligible accounts receivables plus $1.0million.  Borrowings under the revolvingline of credit facility are subject to negotiation and execution of definitiveagreements acceptable to the bank and us. We believe that our existing cash and cash equivalents, along withborrowings under the revolving line of credit facility, assuming the executionof definitive agreements related to this proposed borrowing, will be sufficientto meet our anticipated needs for working capital and capital expenditures forat least the next 12 months.

 

# **Application of CriticalAccounting Policies and Estimates**

# ** **

## ***General***

## *** ***

We prepare ourconsolidated financial statements in conformity with U.S. generally acceptedaccounting principles.  As such, we arerequired to make certain estimates, judgments and assumptions that we believeare reasonable based upon the information available. These estimates andassumptions affect the reported amounts of

 

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assets and liabilities atthe date of the financial statements and the reported amounts of revenues andexpenses during the periods presented. To fully understand and evaluate our reported financial results, webelieve it is important to understand the significant estimates and judgmentsapplied as they relate to our policies for revenue recognition, software developmentcosts, restructuring costs and accounting for stock options.  More detailed descriptions of these policiesare provided in Note 2 to the consolidated financial statements.

 

## ***RevenueRecognition***

## *** ***

Our revenue recognitionapproach requires that four basic criteria must be met before revenue can berecognized: (1) persuasive evidence of an arrangement exists; (2) deliveryhas occurred or services rendered; (3) the fee is fixed and determinable;and (4) collectibility is reasonably assured.  Determination of criteria (3) and (4) isbased on management’s judgments regarding the fixed nature of the fee chargedfor services rendered and products delivered, and the collectibility of thosefees.  Should changes in conditions causemanagement to determine these criteria are not met for certain futuretransactions, revenue recognized for any reporting period could be adverselyaffected.

 

## ***SoftwareDevelopment Costs***

## *** ***

Software developmentcosts incurred from the point of reaching technological feasibility until thetime of general product release should be capitalized.  We define technological feasibility as thecompletion of a working model.  Thedetermination of technological feasibility requires the exercise of judgment byour management.  Because we sell our productsin a market that is subject to rapid technological change, new productdevelopment and changing customer needs, we have concluded that technologicalfeasibility is not established until the development stage of the product isnearly complete.  For us, the period inwhich we can capitalize software development costs is very short, so theamounts that could be capitalized are not material to our financialstatements.  Therefore, we have chargedall such costs to research and development expense in the period incurred

 

## ***RestructuringCharges***

## *** ***

In prior years, werecorded significant restructuring charges. These restructuring chargesincluded estimates pertaining to employee separation costs and the settlementsof contractual obligations resulting from our actions.  In addition, we have estimated the costs forcertain under-utilized facilities and have made assumptions regarding apotential sub-lessee’s future rental rate, as well as the amount of timerequired to identify a sub-lessee.  Todate, our actual restructuring costs have approximated the estimated costsrecorded; however, actual future costs of amounts not yet paid may differ fromthese estimates.

 

## ***Accountingfor Stock Options***

## *** ***

Effective January 1, 2005, we have accounted for stock optionsissued to employees in accordance with SFAS No. 123R (Revised 2004) (“SFAS123(R)”), *Share-Based Payment*.  Under this approach all share based paymentsto employees, including grants of employee stock options, are required to berecognized in the financial statements based on their fair values, instead ofproviding the information in a pro forma disclosure in the notes to thefinancial statements.   We have electedto use the modified prospective method of adoption as permitted under SFAS 123(R), which requires that compensation expense be recorded for all unvestedstock options and restricted stock at the beginning of the first quarter ofadoption of SFAS 123(R).  We havedetermined the fair value of share based-payments issued after January 1,2005 using the Black-Scholes option valuation model.

 

For reporting periods before January 1, 2005, we accounted forstock options using the intrinsic method in accordance with AccountingPrinciples Board, or APB, Opinion No. 25, *Accountingfor Stock Issued to Employees*. Under this approach we did not record any expense at the time theoptions were granted unless the exercise price of a granted option is below thefair market price of our ordinary shares on the date of grant.   For reporting periods before January 1,2005, we have provided disclosures of impact to our reported net loss and netloss per share if we had applied the fair value method.

 

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The determination of fair value of stock options, whether for actualexpense reporting under SFAS 123(R) or for pro forma disclosures, requires theapplication of estimates, such as estimated expected life of the options andestimated market volatility for our ordinary shares.  These estimates are based on management’sreview of historical option lives and computations of market volatility for ourordinary shares.

 

**Results of Operations**

 

The following table sets forth, as a percentage of total revenues,consolidated statement of operations data for the periods indicated:

 
| ** **                     | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------|------------|----------------------------------------|------------|
| ** **                     | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| Revenues:                      |       |                                   |       |   |   |
| Software licenses              |       | 62.4                                   | %          | 45.6 | % |
| Services                       |       | 37.6                                   | %          | 54.4 | % |
| Total revenues                 |       | 100.0                                  | %          | 100.0 | % |
|                           |       |                                   |       |   |   |
| Cost of revenues:              |       |                                   |       |   |   |
| Software licenses              |       | 2.4                                    | %          | 3.2 | % |
| Services                       |       | 3.8                                    | %          | 8.1 | % |
| Total cost of revenues         |       | 6.2                                    | %          | 11.3 | % |
|                           |       |                                   |       |   |   |
| Gross profit                   |       | 93.8                                   | %          | 88.7 | % |
|                           |       |                                   |       |   |   |
| Operating expenses:            |       |                                   |       |   |   |
| Sales and marketing            |       | 63.8                                   | %          | 86.6 | % |
| Research and development       |       | 47.1                                   | %          | 68.3 | % |
| General and administrative     |       | 31.6                                   | %          | 51.5 | % |
| Total operating expenses       |       | 142.5                                  | %          | 206.4 | % |
|                           |       |                                   |       |   |   |
| Loss from operations           |       | (48.7                                  | )%         | (117.8 | )% |
|                           |       |                                   |       |   |   |
| Other income:                  |       |                                   |       |   |   |
| Interest income (expense), net |       | (0.1                                   | )%         | 0.3 | % |
| Other expense, net             |       | (0.5                                   | )%         | (0.0 | )% |
|                           |       |                                   |       |   |   |
| Net loss                       |       | (49.3                                  | )%         | (117.5 | )% |

 

**Three Months Ended March 31, 2005 and 2004**

 

***Revenues***

 

*Total Revenues*. Total revenues were $1.5 million for the three months ended March 31,2005 and $980,000 for the same period in 2004, which represents an increase of53.8%.  This increase resulted primarilyfrom an increase in software licenses revenues.

 

*SoftwareLicenses*.  Software license revenues were $940,000 forthe three months ended March 31, 2005 and $447,000 for the same period in2004, which represents an increase of $493,000, or 110%.  Software license revenues increased as aresult of $362,000 of additional technology license revenues from our agreementwith Ixia, and an increase of $131,000 in software licenses sold to customersattributable to increased average deal size and improved internationalperformance.

 

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*Services*. Services revenues consist primarily of revenue from annual support andmaintenance contracts and, to a lesser extent, training and consultingservices.  Services revenues were$567,000 for the three months ended March 31, 2005 and $533,000 for thesame period in 2004.  Services revenuesincreased primarily due to increases in both support maintenance revenues andtraining related services.

 

***Cost of Revenues***

 

*Cost ofSoftware Licenses*.  Cost of software licensesconsists principally of direct product costs, such as product media andpackaging, as well as royalties due to third parties.  Cost of software licenses was $36,000, or3.8% of software license revenues, for the three months ended March 31,2005 and $31,000, or 6.9% of software license revenues, for the same period in2004.  The decrease in cost of revenuesas a percentage of software license revenues resulted from an increase insoftware licenses revenue attributable to technology licenses for which weincurred no material incremental direct costs.

 

*Cost ofServices*.  Cost of services consists principally ofpersonnel-related costs associated with customer support and training.  Cost of services was $57,000, or 10.1% ofservices revenues, for the three months ended March 31, 2005 and $80,000,or 15.0% of services revenues, for the same period in 2004.  These decreases were due to lower personnelcosts for support and maintenance services resulting from staff reallocationsmade in late 2004.

 

***Operating Expenses***

 

*Sales andMarketing*.  Sales and marketing expenses consistprincipally of salaries and commissions earned by sales personnel, travel andmarketing program costs such as trade shows, advertising and product promotion.  Sales and marketing expenses were $961,000,or 63.8% of total revenues, for the three months ended March 31, 2005compared to $849,000, or 86.6% of total revenues, for the same period in2004.  The increase these expenses wasdue primarily to sales training costs, and increases in salaries and commissionsin addition to staff reallocations made in late 2004.  The decrease of these expenses as apercentage of total revenues was due to the increase in total revenues,partially offset by the increase in sales and marketing expenses.

 

*Research andDevelopment*.  Research and development expenses consistprincipally of salaries and related expenses required to develop and enhancethe Company’s products.  Research anddevelopment expenses increased to $710,000, or 47.1% of total revenues, for the three months ended March 31,2005 compared to $669,000, or 68.3% of total revenues, for the same period in2004.  The increase in these expenses wasdue primarily to increases in salary related costs attributable to terminationand recruiting costs, in addition to increased use of consulting services.  The decrease as a percentage of totalrevenues was due to the increase in total revenues, partially offset by theincrease in research and development expenses.

 

*General andAdministrative*.  General and administrative expenses consistprincipally of finance, executive and administrative salaries and relatedexpenses, professional fees and other costs associated with being a publiccompany.  General and administrativeexpenses were $476,000, or 31.6% of total revenues, for the three months ended March 31,2005 compared to $505,000, or 51.5% of total revenues, for the same period in2004.  These decreases were due primarilyto lower professional fees incurred during the first quarter of 2005.

 

*Interest Income(Expense), Net*.  Interest income (expense), net consistsprincipally of interest earned on cash investments, offset by bank feesand charges.  Interest expense, net was$2,000 for the three months ended March 31, 2005 compared to interestincome, net of $3,000 for the same period in 2004.  The change in interest income (expense), net,resulted from lower invested cash balances in 2005 as compared to 2004.

 

*Other Expense,Net*.  Other expense, net consists principally ofcurrency translation gains and losses. Other expense, net was $8,000 for the three months ended March 31,2005. There was no other expense, net for the same period in 2004.  Thechange in other expense, net was due to exchange rate fluctuations.

 

*Income Taxes.*  We have estimated net operating loss carryforwardsfor Israeli tax purposes totaling approximately $20.6 million through March 31,2005 that would reduce future Israeli income taxes, if any. These net operatinglosses may be carried forward indefinitely and offset against future taxablebusiness income.  We expect

 

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thatduring the period these losses are utilized, our income would be substantiallytax exempt.  Accordingly, there will beno tax benefit available from these losses and no deferred income taxes havebeen included in our consolidated financial statements.

 

Our U.S. subsidiary has estimated net operatingloss carryforwards for U.S. Federal and state tax purposes totalingapproximately $31.6 million through March 31, 2005.  These losses are available to offset anyfuture U.S. taxable income of the U.S. subsidiary and will expire between 2012and 2025.  The Company has recorded afull valuation allowance against its deferred tax asset due to the uncertaintysurrounding the ability and the timing of the realization of these taxbenefits.

 

# **Liquidity and Capital Resources**

# ** **

Cashand cash equivalents totaled $1.1 million as of March 31, 2005 and $2.2million as of December 31, 2004.

 

Cash used in operatingactivities was $1.2 million for the three months ended March 31, 2005 and$854,000 for the same period in 2004. Cash used in operating activities for the three months ended March 31,2005 was due primarily to a net loss of $743,000 combined with an increase of$148,000 in accounts receivable, a decrease in of $301,000 in deferredrevenues, and a decrease of $156,000 in accrued severance, partially offset byan increase of $89,000 in accounts payable and accrued expenses.  Accounts receivable increased as a result ofincreased software license order bookings. Deferred revenues decreased as a result of the recognition of technologylicense revenues from Ixia during the first quarter of 2005.  Accrued severance decreased as a result ofpayments made to terminated employees during the quarter in accordance withIsrael employment practices.  Accruedexpenses increased as a result of increased compensation related accruals andprofessional fees.

 

Cashprovided by investing activities was $103,000 for the three months ended March 31,2005 and cash used in investing activities was $30,000 for the three monthsended March 31, 2004.  The cashprovided by investing activities in 2005 resulted from a decrease of $132,000in other assets, partially offset by the purchase of $29,000 in property andequipment.   Other assets decreased as a result of therelease of deposits to certain terminated employees in accordance with Israelemployment practices.

 

There was no cashprovided by financing activities for the three months ended March 31,2005.  Cash provided by financingactivities was $1.8 million in the same period of 2004.

 

In March 2005, we received a commitment letter for a one-yearrevolving line of credit facility with a bank for borrowings of up to $2.0million.  Advances under the facilitywould be limited to the lesser of $2.0 million or the sum of 75% of eligibleaccounts receivables plus $1.0 million. Borrowings under the revolving line of credit facility are subject tonegotiation and execution of definitive agreements acceptable to the bank andus.

 

We expect that operating expenses and, to a lesser extent, our plannedcapital expenditures, will constitute a material use of our cashresources.  We believe that our existingcash and cash equivalents, along with borrowings under the revolving line of creditfacility, assuming the execution of definitive agreements related to thisproposed borrowing, will be sufficient to meet our anticipated needs forworking capital and capital expenditures for at least the next 12 months. Wemay find it necessary to obtain additional equity or debt financing. In theevent additional financing is required, we may not be able to completefinancing on acceptable terms or at all.

 

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**Contractual Obligations**

 

We lease all of ouroffice facilities under noncancellable operating leases that expire overvarying terms through 2009.  As of March 31,2005, our contractual obligations were as follows:

 
| ** **                  | ** ** | **Payments due by Period** | ** ** |
|-----------------------------|------------|----------------------------|------------|
| **Contractual Obligations** | ** ** | **Total**                  | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **More than  5 years** | ** ** |
| ** **                  | ** ** | **(In Thousands)**         | ** ** |
|                        |       |                       |       |   |   |   |   |   |   |   |   |
| Operating leases            |       | $                          | 457        |   | $ | 170 |   | $ | 248 |   | $ | 39 |   | $ | — |   |
| Severance pay (1)           |       | 557                        |       | — |   | — |   | — |   | 557 |   |
| Total                       |       | $                          | 1,014      |   | $ | 170 |   | $ | 248 |   | $ | 39 |   | $ | 557 |   |

 

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(1)          Severancepay relates to accrued severance obligations to our Israeli employees asrequired under Israeli labor laws.  Theseobligations are payable only upon the termination of the respective employeeand may be reduced if the employee’s termination is voluntary.

 

**ITEM3.  QUALITATIVE AND QUANTITATIVEDISCLOSURES ABOUT MARKET RISK**

 

The Company does not usederivative financial instruments in its investing portfolio.  The Company places its investments ininstruments that meet high credit quality standards such as money market funds,government securities, and commercial paper. The Company limits the amount of credit exposure to any one issuer.  The Company does not expect any material losswith respect to its investment portfolio.

 

The Company conducts business in various foreign currencies, primarilyin Europe and Israel.  As a result, theCompany is exposed to the effect of foreign currency exchange rate fluctuationson the U.S. dollar value of foreign currency-denominated revenues and expenses.  The Company does not use foreign exchangeforward contracts to hedge its foreign currency denominated receivables.  Looking forward, there can be no assurancethat changes in foreign currency rates, relative to the U.S. dollar, will notmaterially adversely affect the consolidated results of the Company.

 

**ITEM 4.  CONTROLS AND PROCEDURES**

 

**Evaluation of Controls and Procedures**

 

We carried out an evaluation, under the supervision and with theparticipation of the Company’s management, including the Company’s ChiefExecutive Officer, or CEO, and Chief Financial Officer, or CFO, of theeffectiveness of the design and operation of the Company’s disclosure controlsand procedures as of the end of the period covered by this Quarterly Report on Form 10-Q.Based on this evaluation, the CEO and CFO have concluded that the Company’sdisclosure controls and procedures are effective to ensure that materialinformation is recorded, processed, summarized and reported by management ofthe Company on a timely basis in order to comply with the Company’s disclosureobligations under the Securities Exchange Act of 1934 and the SEC rules thereunder.

 

**Changes in internal controls**

 

There were no significant changes in the Company’s internal controls orin other factors that could significantly affect these controls subsequent tothe date of the evaluation.

 

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**PART II- OTHER INFORMATION**

 

**Item6.  Exhibits**

 

**Exhibit Index**

 
| 31.1*  |   | Certification by Chief Executive Officer pursuant to 15 U.S.C.  Section 7241, as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                           |
| 31.2*  |   | Certification by Chief Financial Officer pursuant to 15 U.S.C.  Section 7241, as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002. |
|   |   |                                                                                                                                                           |
| 32*    |   | Certification pursuant to 18 U.S.C Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                              |

 

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*  Filed herewith

 

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**SIGNATURES**

** **

Pursuant to the requirements of the Securities and Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned thereunto duly authorized.

 
|                          | RADVIEW SOFTWARE LTD.   |
|-------------------------------|-------------------------|
|                          |                    |
|                          |                    |
| Date:  May 13, 2005 | /s/ CHRISTOPHER DINEEN  |   |
|                          | Christopher Dineen      |
|                          | Chief Financial Officer |

 

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